LONDON May 1 Hard currency bond sales by emerging market borrowers surged in April, with companies chalking up the highest monthly total since the Federal Reserve's first hint at stimulus withdrawal last May spooked investors.
Last month's $60 billion tally compares with just over $100 billion sold in the entire first quarter of 2014, even though Russian firms, usually prolific bond issuers, were absent from the markets.
That was down to growing tensions between Moscow and the West over Russia's annexation of Crimea and its alleged support for pro-Russia separatists elsewhere in Ukraine.
But other emerging market borrowers and investors appeared to shrug off the biggest East-West crisis since the Cold War.
Developing sovereigns raised around $16 billion in April, bringing the year-to-date total to $50 billion, according to JPMorgan, which runs the most widely used emerging debt indices.
And April issuance by companies of over $44 billion was the highest monthly total since May 2013, when the U.S. Federal Reserve's suggestion it might start paring back its monetary stimulus prompted a wave of selling in emerging markets.
"The situation in Russia is isolated," said Cecile Camilli, managing director for CEEMEA debt capital markets at Societe Generale. "We are seeing other regions being active in terms of issuance - Turkey, Middle Eastern and Eastern European issuers.
"Cover ratios have reached up to five times, which shows investors have cash to put to work," she said, referring to the volume of bids relative to the issue size that sellers of new bonds receive from funds.
These ratios in April hit the highest level in the past five quarters, JPMorgan analysts noted, for issuers including junk-rated Zambia, Pakistan, Sri Lanka and Lebanon as well as investment-grade Romania and Turkey.
Data shows cash returning to emerging markets, which saw inflows of $25 billion in April, the Institute of International Finance said this week. Of this, $15 billion went into bonds.
Emerging corporate issuance totals more than $125 billion so far this year, according to JPMorgan, almost half of the bank's full-year forecasts, while sovereign bond sales are already halfway to forecast 2014 volumes.
But rather than a big shift in attitude towards emerging markets, the bumper issuance may be driven by shrinking yields on U.S. Treasuries.
U.S. 10-year yields have fallen 35 bps this year as U.S. economic data has disappointed and events in Ukraine have fuelled buying of safer assets. Emerging dollar debt is priced and traded in terms of spread over Treasuries.
Compression in that spread accounts for most of the 3 percent-plus returns on emerging sovereign dollar debt in 2014.
Citi analyst Luis Costa also notes the gradual flattening, or reduction, in the spread between 10-year and 30-year U.S. yields as a positive for higher-yielding emerging debt.
"In general, markets have become less scared of a huge super-spike in U.S. rates that could create chaos," Costa said.
While the U.S. Federal Reserve has kept the pace of stimulus withdrawal steady, it is expected to start raising rates from July 2015 which will inevitably push yields higher.
The prospect of a rise in yield is one factor driving companies and countries to seize any opportunity to sell debt,
said David Hauner, head of EEMEA fixed income and economics at Bank of America Merrill Lynch.
"The Russia crisis ... has helped to anchor Treasuries. So people haven't seen the Russia crisis as a reason not to buy (for example) Croatia," he said. But "U.S. Treasuries could come under pressure in the second quarter if data is strong." (Editing by Catherine Evans)